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COST - Costco Wholesale News Story

$459.51 -3.8  -0.8%

Last Trade - 17/09/21

Sector
Consumer Cyclicals
Size
Large Cap
Market Cap £148.55bn
Enterprise Value £146.34bn
Revenue £135.36bn
Position in Universe 52nd / 7151

UPDATE 3-American Express card rules violated U.S. antitrust law - judge

Thu 19th February, 2015 8:01pm
(Adds details from decision, comments, possible remedies) 
    By Jonathan Stempel 
    NEW YORK, Feb 19 (Reuters) - American Express Co  AXP.N  
violated U.S. antitrust law by prohibiting merchants from 
steering consumers to use lower-cost credit cards, a federal 
judge ruled on Thursday, in the company's second major setback 
this month. 
    The decision by U.S. District Judge Nicholas Garaufis in 
Brooklyn followed American Express's loss on Feb. 12 of a 
lucrative, exclusive co-branding relationship with warehouse 
retailer Costco Wholesale Corp  COST.O . 
    It is also a victory for the U.S. government and 17 states, 
which in 2010 sued American Express over allegations it forbade 
merchants from recommending to consumers which cards to use. 
    The New York-based company's activities "imposed actual, 
concrete harms on competition in the credit and charge card 
network services market," Garaufis wrote in a 150-page decision. 
    Card companies charge merchants more than $50 billion a year 
to process consumer transactions, the government said. Those 
fees have also spurred many years of litigation by the merchants 
themselves against the card companies. 
    American Express said it will appeal, and that Garaufis' 
decision would harm competition by "further entrenching the two 
"dominant payment networks," Visa and MasterCard. 
    "We believe that freedom of choice and fair competition are 
worth defending," American Express said. 
    Visa Inc  V.N  and MasterCard Inc  MA.N  had also been sued 
by the various governments over their "anti-steering" rules for 
merchants, but settled in 2011 by agreeing to make changes. 
    "Large retailers can save a good chunk of money by 
encouraging customers to use cards like Visa and MasterCard," 
said Matt Schulz, senior industry analyst at CreditCards.com, an 
online marketplace. "If a large retailer can go from paying 5 
percent on a transaction to even 4 percent, that is a lot." 
     
    OPENING UP THE MARKETPLACE 
    American Express has said its "premium" services justify its 
processing fees, which are higher than some rivals charge. 
    It also said its merchant rules help it compete with Visa 
and MasterCard, which together have more than 1.1 billion cards 
in the United States versus 55 million for American Express. 
    Garaufis, however, said American Express wrongfully 
exploited its 26.4 percent share of purchase volume in the U.S. 
credit and charge card market by banning merchants from giving 
incentives for consumers to use one card over another, or 
telling consumers they might be better off if they did. 
    "There is nothing to offset credit card networks' incentives 
- including American Express's incentive - to charge merchants 
inflated prices for their services," the judge wrote. "This, in 
turn, results in higher costs to all consumers who purchase 
goods and services from these merchants." 
    Douglas Kantor, a partner at Steptoe & Johnson who 
represents the National Association of Convenience Stores,  
welcomed the decision. 
    "It ought to open up the marketplace for more price 
competition where there isn't any at all today," he said in an 
interview. "That helps merchants and consumers, because it can 
help keep prices down, and spur spending and economic activity." 
     
    FREEDOM TO CHOOSE 
    Garaufis ruled after presiding over a seven-week non-jury 
trial last summer, and said he would determine remedies later. 
    The lawsuit sought to force American Express to give 
merchants who accept its cards the freedom to encourage 
consumers "to use any payment method they choose." No money 
damages were sought. 
    Leslie Overton, deputy assistant attorney general for the 
Justice Department's antitrust division, said the decision helps 
ensure that "competition is not restricted in this important 
sector of the economy." 
    American Express has said a loss in the case could have a 
"material adverse effect" on its business. 
    That could add to the loss of earnings stemming from the 
demise of its partnership with Costco, which began in 1999 and 
will end in March 2016.  ID:nL4N0VM5T1  
    American Express is the only credit payment form accepted at 
Costco's U.S. stores. Costco last year decided to replace 
American Express as its card partner in Canada with MasterCard 
and Capital One Financial Corp  COF.N . 
    In afternoon trading, American Express shares were down 
$1.60, or 2 percent, at $78.18 on the New York Stock Exchange. 
Visa was up 0.1 percent, and MasterCard was up 1.6 percent. 
    The case is U.S. et al v. American Express Co et al. U.S. 
District Court, Eastern District of New York, No. 10-04496. 
 
 (Reporting by Jonathan Stempel and David Ingram in New  York; 
Diane Bartz in Washington, D.C., and Nandita Bose in Chicago; 
Editing by Tom Brown and Grant McCool) 
 ((David.Ingram@thomsonreuters.com; +1 646 223 6720; Reuters 
Messaging: David.Ingram.thomsonreuters.com@reuters.net)) 
 
Keywords: AMERICAN EXPRESS ANTITRUST/
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